“Excessive chip inventory” are three words I had not expected to write at any point, and yet the world’s largest contract chip supplier predicts the seemingly unlikely scenario. TSMC said in a earnings call on Thursday that while its net income hit record levels (up 76.4% year-on-year), subdued demand in PCs, smartphones and other consumer segments has led to a “surplus stock in the semiconductor supply chain.” The chip maker predicts it will take “a few quarters” before things balance out again.
On the smartphone and PC front, declining demand follows two years of shutdowns and telecommuting, a period when consumers were eager to upgrade or buy new gadgets that they would trust. Now that the home offices are fully equipped, the demand has disappeared. Another culprit for lack of chip supply, crypto mining, has imploded in recent months as cryptocurrencies continue their bottomless free fall. At the same time, geopolitical tensions and rising inflation are creating further uncertainty. TSMC is not the only company ringing the alarm bells: last month, Micron warned of declining demand for consumer products.
“Our suppliers have faced greater challenges in supply chains, extending tool delivery times for both our advanced and mature nodes,” said TSMC CEO CC Wei.
To be clear, the chip shortage is far from over. While the inventory of the advanced chips found in modern consumer gadgets is increasing, demand in other market segments, including data centers and the automotive industry, has remained stable. Supply to these areas is tight and TSMC needs to redistribute resources to accommodate such constant demand. It may not be enough to do so as the chip maker says, consumer needs will continue to exceed “our ability to deliver.”
TSMC says the demand for leading 5-nanometer and 7nm chip technologies will help support their businesses by the end of this year. Apple’s next iPhone could play a big role: TSMC is the sole chip supplier to the Cupertino giant and is responsible for the production of its custom silicon, including the new M2 processor in MacBook Pro and MacBook Air. TSMC also supplies fabulous semiconductors including Qualcomm, Nvidia, AMD and MediaTek.
“Let me now talk about TSMC’s long-term growth prospects. While macroeconomic headwinds bring short-term uncertainty that may continue, we believe the fundamental structural growth path in the long-term demand for semiconductors remains solidly in place,” Wei said.